@techreport{NBERw8311,
 title = "Asset Prices and Trading Volume Under Fixed Transactions Costs",
 author = "Andrew W. Lo and Harry Mamaysky and Jiang Wang",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "8311",
 year = "2001",
 month = "May",
 URL = "http://www.nber.org/papers/w8311",
 abstract = {We propose a dynamic equilibrium model of asset prices and trading volume with heterogeneous agents facing fixed transactions costs.  We show that even small fixed costs can give rise to large 'no-trade' regions for each agent's optimal trading policy and a significant illiquidity discount in asset prices. We perform a calibration exercise to illustrate the empirical relevance of our model for aggregate data.  Our model also has implications for the dynamics of order flow, bid/ask spreads, market depth, the allocation of trading costs between buyers and sellers, and other aspects of market microstructure, including a square-root power law between trading volume and fixed costs which we confirm using historical US stock market data from 1993 to 1997.},
}